how canadian exports with a strong dollar
DESCRIPTION
The Canadian dollar is again consistently trading above parity against the U.S. dollar. When this last happened, in 2007, many Canadian exporters were caught unprepared as our dollar broke through that symbolic barrier and their profit margins abruptly vanished. Many of these companies, in order to continue exporting, slashed expenditures as quickly as they could. This time, however, Canada’s export community appears to be in a much better position to cope with the dollar’s rise. Over the past few years, and during the economic downturn in particular, many exporters have made shrewd strategic decisions to safeguard their international competitiveness. Now that global demand is finally showing signs of recovery, these exporters are well positioned to increase their international sales despite the Canadian dollar’s high value relative to many major currencies, not least the U.S. greenback. This white paper presents the key strategies that have enabled many of Canada’s exporters to adapt successfully to the strong loonie. Supporting data shows the extent to which each of these strategies has been used. The data also highlights the areas that Canadian exporters may want to emphasize so they can compete more effectively in a world where the Canadian dollar is so strong.TRANSCRIPT
How Canadian ExportersAre Adapting to a StrongCanadian Dollar
Now that global demand is finally showing signs of recovery, these exporters are well positioned to increase their international sales despite the Canadian dollar’s high value relative to many major currencies, not least the U.S. greenback
EDC currently expects Canadian goods and services exports to grow by 12% in 2011 and by 7%in 2012.2 Part of this growth will be due to export levels continuing to recover from their 24%collapse in 2009.
Strategies for adapting to a strong canadian dollar
• diversify into new markets;• establish a physical presence abroad;• use imported inputs in significant quantities; and• increase productivity by boosting efficiency and
innovation.
Numerous Canadian exporters began using some of these strategies in 2003, as soon as the dollar’s value began to rise. Since then, and particularly after the global crisis of 2008–2009, even larger numbers of our exporters have put one or more of these strategies to use.
Diversifying Export Markets
More than 4,000 companies began to export to countries other than the U.S. during this period. Partly as a result, the share of Canadian goods and services exports to the United States fell from close to 83% in 2002 to less than 71% in 2010
Establishing a Physical Presence Abroad
Between 2002 and 2008, the sales of these Canadian foreign affiliates rose twice as fast as export sales originating from Canada, at 6.2% per annum versus 2.8% per annum respectively
It can reduce the negative impact of the strong Canadian dollar in two fundamental ways:
• First, as an exporter’s foreign exchange exposure diminishes, so does the Canadian dollar’s influence on profit margins and export price competitiveness. Accordingly when an exporter increases its foreign currency expenditures (especially in U.S. dollars), it will automatically reduce the sensitivity of its international sales and profits to shifts in the value of the loonie.
• Second, the greater purchasing power provided by a strong Canadian dollar can help cut expenses by reducing the cost of imported raw materials, parts and components, which in turn increases profit margins.
Purchasing More Foreign Goods and Services
• Operational efficiency• investing in new technology• Improve processes and mobilize workers• innovation and differentiation• creating unique products• upgrading quality • improving service levels
Improving Productivity
